Trade Truths for Trumpians and Brexiteers

Recent data indicate that Germany's largest trading partner is now China, rather than France. This news should serve as a reality check for protectionist policymakers in the UK and the US, and for the many pundits who frequently comment on world trade without understanding its realities.

LONDON – Here’s a reality check for British and American policymakers, and for the many pundits who frequently comment on world trade without understanding its realities: data on Germany’s total exports and imports in 2016 indicate that its largest trading partner is now China. France and the United States have been pushed into second and third place.

This news should not come as a surprise. I have often mused that, by 2020, German companies (and policymakers) might prefer a monetary union with China to one with France, given that German-Chinese trade would likely continue to grow.

And so it has, driven primarily by Chinese exports to Germany. But German exports to China have also been increasing. Notwithstanding a recent slowdown, Germany could soon export more to China than to its crucial neighbor and partner France, and it already exports more to China than it does to Italy. For German exporters, France and the UK are the only European national markets larger than China.

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The U.S. current and surprising copout on world-leadership will unavoidably lead to a reduction of its standard of living, already at perilous levels for its mostly basic-level workforce across most industries, perhaps markedly so by the end of Trump's administration, hopefully a single term one. Further, the U.S. reduction of "entitlements" -read antipoverty and anti-inequaity socioeconomic and sociopolitical measures- will compound the already diminishing competitiveness of its workforce and will lead to a further increasing trade deficits with its historically main trading partners of Canada and Mexico and the EU, and most notably with the looming new superpower and free-trade champion that is China, soon to be its biggest single trading partner to which exports relative to imports are and have long been in a nose dive. In addition, the aggressive dismantling and undoing of celebrated historical domestic social and economic conquests currently being conducted by the new U.S. administration, and its toxic and unjustified war on immigrants, the builders of the former leader of the world and its immense riches and power, and the encouragement of similar policies in rising copycat regimes in Europe and elsewhere, will yield the black fruits of further social, economic, and political instability across the globe, and ultimately, world wars. Ignorance and arrogance can never replace culture and the necessary humility for constructive multilateral dialogue in the context of hyper-complex reality; impulsiveness, temperance; and yes, foolishness, wisdom.

I hope there are some ideas of value and relevance in these aging articles and past contributions to dialogue on how to complement comprehensive environmentally friendly global development:

But UK's problem is that (unlike the independant City of London) it lacks a financial industry; and especially a structrure of small indelpendent banks not frozen out ny the Big Four's control of the domestic banking utilities like ATMs, clearing systems etc that can then promote local entereprise and growth in their own area. No doubt adding noughts to the value of financialised assets seems a good move to speculators in GS etc, but for the rest of us the global London financial foothold has proved disastrous in and since 2008; and that is because of lack of political will among the paid-for MP's. That political will is beginning to emerge through Brexit, and may or may not succeed - but a switch to productive local capital formation away from fimnancial credit-instruments and debt-mongering is long overdue. Hopefully the crooks in the big banks will be prosecuted instead of fined, too.

Well obviously the number one economic rule when it comes to trade that free trade can be only between countries with freemarket economic system.
The second is that a freemarket economic system within a country is only when the induviduals in those countries can sell their own respective labor for a fair market value without any interference by government's policies and regulations.
Now if the writer thinks any of the mentioned countries in this article has freemarket economic system within their respective economic borders than obviously came from an other planet or just simple an ignorant globalist propagandist without understanding basic economic facts about the economic system called capitalist based on profits and debt.

This is a level of monetary Ignorance quite staggering considering the melt down of 2008. Savings have nothing at all to do with Capital formation in the modern financialised economy . Banks are originators of Credit, this Bank of England research paper explains it very well and a Click on this Professor Richard Werner Link will probably yield a little surprise for this view of political economy.http://www.monetary.org/wp-content/uploads/2016/03/money-creation-in-the-modern-economy.pdf
http://www.bankofengland.co.uk/publications/Documents/quarterlybulletin/2014/qb14q102.pdf
http://www.sciencedirect.com/science/article/pii/S1057521914001070

Very well put.
Savings has nothing to do with available money for investment or setting the interest rates.
truly in today's economic system savings are irrelevant because money created with no limits by the banks.
Some time ago one only could borrow from someone else savings.
Today debt is many million times more than savings of all the people on the world.

What still baffles me about this Trade competitive dynamics discussions is the underlying assumption that changing one country market share on another one, especially if the latter is quite "sought after" (i.e. because is a large and growing market), seems something like achievable (sometimes sounds like even straight forward) over time (of course not overnight).

The argument ignores the practical realities of heavy international competition, which actually is the critical driver (rather than "individual will") that determines that market share.
Most large countries can not expect will be able to substitute an important part (e.g. 30-40%) of its current export market share distribution from some countries to others over time as a matter of course; definitely not without addressing in depth what are the competitive advantages, sector by sector in the economy, that will enable you to win in the market place and, as importantly, (and this is the difficult bit) what would be the competitive reaction from your competing countries (this is close to a Zero-sum game!).

In the case of Brexit, I think the argument gets even more complicated: imagine for a moment that the UK had decided to attempt this market share redistribution of its int'l trade 1 or 2 years ago (pre-Brexit)... it would have been already a daunting prospect, would not?
So, now, post-Brexit, it should be even more daunting as the attempt will happen while making a huge and costly transition out of the EU ... which I would argue will undermine more than strengthen the competitive advantages UK needs to succeed in this Zero-sum game, at least for a lengthy transition period: internal inflation, tax increases, market volatility, EU-exit bill, labour status-quo disruption (i.e. EU talent under threat), Brexit distraction on management at cies., ... all of this can not help to enable any competitive advantage (except for Pound devaluation, up to the point this is an advantage, since it has a double edge).

How about Germany and China starting from tomorrow stop all kinds of direct or indirect support of their almighty "national champions" and the governments sell any equity they have in businesses? How about Germany reintroduces the DM and allows its value and the cost of German exports to rest of the world jump overnight? How about China stops any meddling with its economy? Let then the free market globalisation play begin? And let us then see how the US and the UK would fare in that world?

What an outrageous desire to save the status quo by all means! I can't believe I even considered donating this website.

What is clear is that Brexit amounts to massive displacement activity all the more frustating because the referendum was 100% political expediency visted on the UK by just 37.5% of the registered electorate! The government is well out of its depth but soldiers on hoping for a steep learning curve. Yes probably China is the future for trade although Mrs May seems quite keen on the USA hoping her new friend, Donald, will do her a few favours. I am not sure Trump will do anything for a State visit and a ride down the Mall in a golden carriage (mmm I wonder!). UK's productivity is 80% of that of Germany so an even lower value of Stering may be necessary to boost exports where there is strong price competition - ie low margins. How a government can be promoting productivity whilst disinvesting in education is an unwelcome wonder to behold!

A person could read an article like this and not learn that China exports 4 times as much (in goods) as the U.S. exports to China. In other words, you could read this article and have your level of ignorance go up. U.S. trade policy with China has been (and remains) a disaster. Millions of lost jobs (at least three million). Political polarization. Declining life expectancy. National decline. Of course, the China trade is good for the Goldman bonus pool. What else really matters?

Good article but I do take issue with the points regarding migration and productivity.

The relationships between GDP per hour worked, levels of overall employment, volume of migrants entering the labour force and levels of investment are complex.
Three-quarters of people moving to Britain from recent EU joiners do so to work; 70% of those who succeed end up in low-skilled jobs. It seems a major part of the UK’s low productivity comes from poor investment in automation and use of cheap imported labour.

The greatest affliction of the EU on our government over the past 4 decades has been to cause a passivity and apathy towards solving exactly the kids of issues Lord O’Neill is setting out. Throughout the early ‘00s the UK’s growth was largely consumer driven, the value of manufacturing was dismissed because it does not increase employment fast, in favour of low skill service jobs, many of which are focussed towards overseas workers because our native ones were either more comfortable within or unable to escape from a byzantine welfare system.

It may have to get worse before it gets better but uncovering and shedding light upon these structural problems is long overdue and the first step to actually resolving some of them.

THE WINNING TEAM - WHY THE PAST IS NEVER PAST.
CANZUK is indeed the First Step - because it is the backbone that enabled Britain to withstand the Centennial Megalomania in Europe.
CANZUK perhaps should never have been given up - to pursue Europe's Union was against 500 years of history.
France and Germany will never forget - and The European Union was godsend, a platform for Centennial Megalomania.
The European Union is NOT about the collective wisdom of 500 million - France and Germany will hijack the agenda.
It's like permitting China and Japan inside ASEAN - ASEAN will then become another "European Union", instead of a platform for good.

CANZUK PERHAPS THE ZERO - THAT LEADS TO INFINITY.
The Commonwealth Free Trade Area was once the World's largest - and the reason why France and Germany eventually always lost.
CANZUK can become the Nucleus of The Future - with NordEurop as the natural corollary as Scandinavians happiest inside The Anglosphere.
ClubMed should be encouraged to forge their Mediterranean Union - with France as their Saviour Anchor.

CANZUK PLUS is the FUTURE that Brexit demands.
India is an obvious direction - for SIZE, and due history.
Two million Soldiers that braved Two World Wars - to enable The Anglosphere to live on forever.
It wasn't European Union that enabled The survival of The Anglosphere - and America of course.

Why on earth did The Winning Team changed - to fall for The France/ Germany Commonwealth, is beyond my wisest genes.
But the India that has flourished since freedom - has aspirational dimensions, that have to be factored in any future Destiny.
CANZUK PLUS therefore seems the perfect panacea - until the next moment in history.
Personally I think India will want to be inside The Anglosphere - and will not threaten, like France and Germany.
But that time only can tell.

Africa is like Cheltenham, easy to enter but then often difficult to find the way out; as hagard face travellers will testify, and last time I looked Libya was seriouslylike tribal warfare. And Nigeria - well Northern Nigeria is not looking so good is it. I would rather Timbukutu myself, at least the building are easy to rebuild

Jim O'Neil

Germany has played the game very well for Germany which is what it always does, just ask Norman Lamont, but German exports are a beneficiary of the Eurozone debarcle surppressing the value of the euro which is ultimately unsustainable, so to talk of what might be in decades is slightly optimistic, or do you think the MedClub will continue in their self inflicted purgatory, I dont think they are that stupid, GR is simmering along at the moment

Steve, there is a large British community in Africa and of course there are the historical ties. No denial, Libya and many African countries have their own challenges, but any country today has its own challenges, including China. Libya was a British "protectorate" better for it to return to the fold rather than falling into the hands of Russia, again...one does not want history to repeat itself..

Forget Trump, he has very little if no time left to implement anything from what he said he would do. Unless he starts the impeachment process of HC and BO he will keep on be distracted by their cronies and achieve nothing. Regarding this current British Government and its members of holiday seekers, the author is very much right, they are living in denial and ignoring totally the harsh economic realities in the UK and on the global stage. Prices have started to go up in the UK, taxes will follow soon, wages shall start dropping and in the no distant future there shall be no one left to support the NHS and Pension systems due to demographic problems. On the Trade issue, and based on historical data, the author is correct, however and taking into account the aforementioned, Africa is the real potential, the British establishment can start by stabilising Libya and tapping into its resources instead of handing it over to Putin as it is currently the case. China has many internal structural problems to resolve and can never become a team player on the world stage, any efforts in their direction shall be just a waste of time, not ignoring the fact the huge investments that China already made in many African countries to tap into their resources. Some food for thoughts...

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